M/s. Madhav Construction, Ahmedabad V. The Income Tax Officer, Ward 9(2), Ahmedabad

ITA 1454/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1155 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA. NO.1454/AHD/2013 (ASSESSMENT YEAR:2009-10) M/S. MADHAV CONSTRUCTION 16, SNEHKUNJ SOCIETY, AMBAWADI, AHMEDABAD 380015 APPELLANT VS. ITO, WARD 9(2), AHMEDABAD RESPONDENT PAN: AANFM8341D / BY ASSESSEE : NONE / BY REVENUE : SHRI KEYUR PATEL, SR. D.R. /DATE OF HEARING : 28.06.2016 /DATE OF PRONOUNCEMENT : 11.07.2016 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10, ARISES FROM ORDER OF THE CIT(A) - XV, AHMEDABAD, DATED 07.10.2013 PAS SED IN PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961, HEREINAFTER THE ACT. 2. CASE CALLED TWICE. NONE APPEARED AT ASSESSEES BEHEST DESPITE SERVICE OF NOTICE ON 14.06.2016. WE ACCORDINGLY PROCEED EX PARTE AGAINST THE ASSESSEE. ITA NO.1454/AHD/2013 (M/S. MADHAV CONSTRUCTION VS. ITO) A.Y. 2009-10 - 2 - 3. THE ASSESSEES SOLE SUBSTANTIVE GROUND CHALLENGE S THE LOWER APPELLATE ORDER UPHOLDING ASSESSING OFFICERS ACTION REJECTIN G ITS BOOKS THEREBY ESTIMATING GROSS PROFITS @ 20% AS AGAINST 16.15% RE SULTING IN ADDITION OF RS.9,63,300/- IN QUESTION. THIS ASSESSEE IS A FIRM ENGAGED IN CONSTRUCTION BUSINESS. WE FIND THAT THE CIT(A)S FINDINGS UNDER CHALLENGED ELABORATELY DISCUSSED THE ASSESSING OFFICERS OBSERVATION AND A SSESSEES ARGUMENTS AS UNDER: 5.3. GROUND NO.3 WITH ITS SUB-GROUND IS AGAINST TH E ADDITION OF RS.9,63,300 ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNTS AND ESTIM ATION OF G.P. AT 20% AGAINST 16.15% SHOWN BY APPELLANT. THE A.O. AT PARA 6 OF TH E ASSTT.ORDER DISCUSSED THIS ISSUE. THE A.O. IN VIEW OF DRASTIC REDUCTION OF G.P . FROM 20.30% TO 16.15% AND NET PROFIT FROM 6.22% TO 1.92% ASKED THE APPELLANT TO PRODUCE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS. IN THE ABSENCE OF SUCH BILLS/VO UCHERS (NOT PRODUCED BY APPELLANT), THE A.O. INVOKED THE PROVISIONS OF SECT ION 145(3) OF THE ACT AND ESTIMATED THE G.P AT 20% AND MADE THE ADDITION. THE APPELLANT IN APPEAL CONTENDED THAT (A) THE RATIO OF CONSTRUCTION DOES NOT REMAIN SAME IN THE LINE OF CIVIL CONSTRUCTION AND THERE IS VARIATION OF BOTH MATERIA L AND LABOUR COST AS WELL AS COST OF CONSTRUCTION AT A PARTICULAR STAGE OF CONSTRUCTI ON I.E. INITIAL STAGE REQUIRE MORE CEMENT, BRICKS, STEEL WHILE FINISHING STAGE REQUIRE DIFFERENT RAW MATERIAL. (B) THE GROSS RECEIPT DURING THE PREVIOUS YEAR RELE VANT TO A.Y.2008-09 IS RS.3,42,17,760 WHICH IS VERY HIGH COMPARABLE TO GRO SS RECEIPT OF RS.2,50,20,805 OF PREVIOUS YEAR AND THEREFORE THE RESULTS CANNOT BE C OMPARED. (C) THE APPELLANT WITH COMPARABLE FIGURES FOR VARIO US RAW MATERIALS CONTENDED THAT DUE TO DIFFERENCE OF STAGE OF CONSTR UCTION OF 'KAMAL NAYAN BUNGALOWS' SCHEME AND WORK IS CERTIFIED BY ARCHITEC T ON THE BASIS OF EXPENDITURE ON MATERIAL AND LABOUR, THE BOOK RESULTS FOR TWO AD JACENT YEAR CANNOTT BE COMPARED. (D) THOUGH SECTION 44AD IS NOT APPLICABLE IN THE CA SE OF APPELLANT E TOTAL NET PROFIT OF RS.21.68 LAC (RS.4.81 LAC N.P. + RS. 13.4 7 LAC PARTNER'S INTEREST + RS.3.40 LACS PARTNER'S REMUNERATION) ON TOTAL RECEIPT OF R S.250.21 LAC IS 8.66% WHICH CAN HOLD TO BE SATISFACTORY IN THIS LINE OF BUSINESS. (E) THE APPELLANT IN DETAIL CONTENDED THAT SECTION 145(3) OF THE ACT INVOKED BY A.O. IS, NOT PROPER ON TECHNICAL AND LEGAL GROUND. THE APPELLANT CONTENDED THAT IT FOLLOWED CONSISTENT ACCOUNTING POLICY OF PROPORTION ATE COMPLETION METHOD AND ITS BOOKS OF ACCOUNTS ARE AUDITED WITH FULLY SUPPORTED BY BILLS AND VOUCHERS. THE ROLL OVER PERIOD FOR A CIVIL CONTRACT WILL ALWAYS LEAD T O SUCH MINOR DISCREPANCY OF GROSS PROFIT IN ADJACENT TWO YEARS. RELIANCE WAS PLACED ON HON'BLE ITAT AMRITSAR BENCH IN THE CASE OF PAL SINGH & CO. V. IT O (35 OT 296). ITA NO.1454/AHD/2013 (M/S. MADHAV CONSTRUCTION VS. ITO) A.Y. 2009-10 - 3 - (F) WITHOUT PREJUDICED IT WAS CONTENDED THAT A.O. C ANNOT MADE ESTIMATION OF G.P. WITH DISALLOWANCE U/S.41(1) OF THE ACT I.E. ON CE BOOKS OF ACCOUNTS ARE REJECTED THEN THESE ADDITIONS CANNOT-BE SEPARATELY MADE. RE LIANCE IS PLACED ON HON'BLE ITAT , AHMEDABAD IN THE CASE OF SAI INSPIRATION V. ITO (SUPRA). IT IS EVIDENT FROM THE ASSTT. ORDER THAT APPELLANT FAILED TO PRODUCE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS TO SUPPORT THE BOOK RE SULTS AS SHOWN BY APPELLANT THOUGH THE BOOKS OF ACCOUNTS OF APPELLANT ARE SUBJE CT TO AUDIT. IT IS ALSO BEYOND DOUBT THAT THERE IS FALL IN GROSS PROFIT AS WELL AS NET PROFIT IN RESULT OF PREVIOUS YEAR COMPARED TO EARLIER YEARS. THE APPELLANT THOUGH CON TENDED THAT THERE IS ROLL OVER PERIOD OF CONTRACT AND WORK IS CERTIFIED BY THE ARC HITECT BUT NO CERTIFICATE FROM THE ARCHITECT WAS FILED TO SUBSTANTIATE THE APPELLANT'S CLAIM ABOUT SUCH ROLL OVER OR HOW HE VALUED THE WORK DONE. AS PER THE DETAILS OF PURCHASE ACCOUNT, DIRECT EXPE NSES WITH WORK DONE ACCOUNT RELATED TO A.Y. 2008-09 AND A.Y. 2009-10 TO POSITION IS AS FOLLOWS: DR. FOR A.Y. 2008-09 CR. 1. PURCHASE ACCOUNT RS.2,02,57,175 (59.46% OF WORK DONE) 2. DIRECT EXPENSES RS.70,72,531 (40.54% OF WORK DONE) WORK DONE 3,40,75,800 FOR A.Y. 2009-10 1. PURCHASE ACCOUNT RS.1,45,26,579 (58.05% OF WORK DONE) 2. DIRECT EXPENSES RS. 64,54,090 (41.95% OF WORK DONE) WORK DONE 2,50,20,805 CONSIDERING THE FINISHING WORK OF THE SCHEME WITH E QUAL PERCENTAGE OF PURCHASES, THE VALUE ADDITION SHOULD HAVE BEEN MORE IN A.Y. 20 09-10 COMPARED TO A.Y. 2008- 09. IT IS THEREFORE IN THE ABSENCE OF BILLS, VOUCHE RS, BOOKS OF ACCOUNTS (SINCE NOT PRODUCED BEFORE A.O. AS WELL AS BEFORE ME) AND CERT IFICATE FROM THE ARCHITECT TO CERTIFY SUCH VALUE OF WORK DONE, REJECTION OF BOOKS OF ACCOUNTS BY A.O. IS HELD JUSTIFIED. THE ESTIMATION THEREFORE AT 20% GROSS PR OFIT IS ALSO JUSTIFIED BEING BASED ON COMPARABLE DATA OF APPELLANT WHICH APPELLANT FAI LED TO DISTINGUISH ABOUT ITS COMPARABILITY CONSIDERING THE PERCENTAGE OF PURCHAS ES TO TOTAL WORK DONE. HOWEVER, I AM INCLINED WITH THE CONTENTION OF THE A PPELLANT (THOUGH WITHOUT PREJUDICED) THAT ONCE THE BOOKS OF ACCOUNTS ARE REJ ECTED AND GROSS PROFIT IS ESTIMATED, THERE REMAINS NO SCOPE OF ADDITION U/S.4 1(1) OF THE ACT. THIS IS SUPPORTED BY VARIOUS LEGAL PROPOSITIONS. I HAVE AL READY IN THE PREVIOUS PARA HELD THAT SUCH ADDITION IS NOT JUSTIFIED AND ALLOWED THE APPEAL OF APPELLANT FOR SUCH GROUND. THEREFORE, IN REFERENCE TO PRESENT GROUND, THE ADDITION SO MADE BY A.O. OF RS.9,63,300 ARE UPHELD AND CONFIRMED. THE APPEL LANTS GROUND IS DISMISSED. 4. WE HAVE HEARD THE REVENUE. CASE FILE PERUSED. THERE CAN HARDLY BE ANY DISPUTE THAT THIS ASSESSEE IS DECLARING STAGE-W ISE PROGRESS QUA ITS GROSS ITA NO.1454/AHD/2013 (M/S. MADHAV CONSTRUCTION VS. ITO) A.Y. 2009-10 - 4 - PROFIT SO FAR AS THE CONSTRUCTION PROJECTS IN PROGR ESS ARE CONCERNED. WE FIND THAT IT HAS ATTRIBUTED THE IMPUGNED GROSS PROFIT DE DUCTION FROM 20% IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR TO 16.15% TO V ARIATION IN BOTH MATERIAL AND LABOUR COST FOLLOWED BY CONSTRUCTION OUTGO OF T HE PARTICULAR STAGES I.E. INITIAL AND FINISHING WORK. BOTH THE LOWER AUTHORI TIES FAILED TO SPECIFICALLY REBUT THIS FACTUAL POSITION. THE ASSESSEES PURCHA SE ACCOUNT, DIRECT EXPENSES ALSO SHOW THE VARIATIONS IN THE TWO ASSESSMENT YEAR S SO FAR AS THE ISSUE IN HAND IS CONCERNED. WE NOTICE THAT THE CIT(A) HIMSE LF ACKNOWLEDGES THE FACT WITHOUT PREJUDICE WHILST DELETING SECTION 41(1) DIS ALLOWANCE OF RS.9,51,611/- ON THE GROUND THAT IF BOOKS OF ACCOUNTS AE REJECTED AND GROSS PROFITS ARE ESTIMATED, SUCH AN ADDITION IS NOT MAINTAINABLE. W E TAKE INTO ACCOUNT ALL THESE PECULIAR FACTS AND CIRCUMSTANCES TO OBSERVED THAT THIS ISSUE OF GP ADDITION IS HIGHLY SUBJECTIVE ONE TO BE DECIDED AS PER THE RELEVANT FACTS INVOLVED I.E. NATURE OF BUSINESS, PRODUCT MARKET, C OSTS INCURRED TO NAME A FEW. WE ARE ACCORDINGLY OF OPINION THAT A LUMP SUM GROSS PROFITS PERCENTAGE OF 17% AS AGAINST 20% AND 16.15% ADOPTED BY THE REV ENUE AUTHORITIES AND ASSESSEE RESPECTIVELY WOULD MEET THE ENDS OF THE JU STICE. IT IS MADE CLEAR THAT THE SAME WOULD NOT FORM PRECEDENT IN ANY PRECEDING OR SUCCEEDING ASSESSMENT. THE ASSESSEES SOLE SUBSTANTIVE GROUND PARTLY SUCCEEDS. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE GROSS PROFITS IN QUESTION IN THE IMPUGNED ASSESSMENT YEAR @ 17%. 5. THIS ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 11 TH DAY OF JULY, 2016. SD/- SD/- (MANISH BORAD) (S . S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 11/07/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- ITA NO.1454/AHD/2013 (M/S. MADHAV CONSTRUCTION VS. ITO) A.Y. 2009-10 - 5 - / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )* + ,--. . /0 / DR, ITAT, AHMEDABAD 1 + 23 4 5 / GUARD FILE. BY ORDER / . // , . /0